Tech sector plans fight over tax deferral

High-tech industry giants such as Hewlett-Packard, IBM, Microsoft and Oracle will intensify their opposition this fall to an Obama administration proposal aimed at limiting what critics insist are offshore tax breaks.

This showdown over the tax deferral on corporate revenue derived from overseas operations is a major lobbying battle that will stretch well into 2010.

"This is the linchpin in American competitiveness," Phil Bond, president of TechAmerica, the nation's largest high-technology advocacy group, said at a news briefing today. "The tax provisions around overseas income are critical to allowing our companies to go overseas to compete and succeed."

With the United States representing only 5 percent of the world's population, domestic companies need to reach global markets, he emphasized, adding: "We do not think that it is a good trade to sacrifice long-term jobs for short-term revenue. And we'll be making that point on the Hill."

Officials with the industry group, which has 1,500 member companies, noted that the issue impacts hundreds of smaller firms operating in foreign markets, and not just larger players.

While proposals to limit tax deferrals and other international tax law changes have yet to find their way into legislation, the tech sector isn't taking any chances. "Threats persist," said Bartlett Cleland, senior director of tax and e-health policy for TechAmerica.

There's already concern that such a proposal might be inserted into legislation later this year to offset spending elsewhere, perhaps on health care. The Joint Committee on Taxation estimates that $160 billion could be saved over 10 years through the Obama administration's international tax proposals.

The Obama administration is targeting the deferral as part of a broader effort to curb the outsourcing of jobs to countries such as China and India. But the high-tech sector is fighting back with a lobbying blitz aimed at positioning the deferral as a necessary mechanism that enables U.S. companies to remain competitive in foreign markets -- and not as a tax break.

TechAmerica officials warned today that eliminating or curbing the deferral would reduce corporate bottom lines, resulting in the sorts of job cuts the administration is trying to prevent. "We think it ends up having the opposite effect of what was intended," Bond said after the briefing.